Dividends! Myth?

[megacorp-firee]

I suspect that he's counting on the diversification to cover for a lack of active management. He could use a policy of only looking at a stock if it actually cut its dividend and the portfolio would probably work fine, as long as he chose decently initially.

Really, at 70 names, you could think of it as its own high-yield index. He would typically have to make a few adjustments a year. A dividend cut, or an aquisition could be the only criteria he'd need to use.

I'm FIREd and don't [-]want to piss away my time[/-] have the time to do this. I woulda stayed w*rking (NAH, now I'm lying to you) if I wanted to w*rk this hard. I gave up a cushy 6 figure job to do this FIRE stuff (and btw still wouldn't trade it for anything)

 

[mathjak107]

the only thing i have to say about the dividend paying stock thing is you need to select the best possible companies with a long history of dividend increases. not from a drop in share price. other wise all you get for your money is a piece of your share value back and a cut in the stock price by the same amount. we all assume the giving away of company assets will be a non event to the share price and that the stock will recover from the drop it takes very quckly, it may or not be true , its an assumption.

companies only increase their dividends for one reason, because they have the money . a high dividend by itself means nothing.

 

[jIMOh]

Interesting plan. If I read this correctly, you will be holding upwards of 70 stocks. You, in essence will be trading your j*b for full time portfolio management. That's ok if that is your hobby/passion. But it can get rather tedious if it is not something that you want to spend all of your waking hours doing. Just an observation.

Not really. The goal is dividend income- if the income is coming in, not much to worry about. I have experimented with screens for the mid cap/small cap situation. At end of year, usually around 7-10 of the stocks I picked were bought out (use a screen with increasing profits, HIGH insider ownership and a few other balance sheet or market items). Meaning I don't need to maintain the small cap/mid cap piece over time- it needs to last one year. The next year I might replace 2/3 of the small cap position because of the activity the previous year.

In addition that same screen, for last 3 years, has found around 30 stocks. Around 10 get bought out, and around 5 start increasing their dividend considerably. This piece is quite volatile on NAV, but the dividend stream will rise faster than the rest of the portfolio over time. That is the ultimate goal.

Because I would be FIREd, maintaining this would not be a time issue. Looking at it 2X per month for 2 hours each time is enough, IMO. I spend that much time surfing the web in one day most of the time. Just need to channel my energies to other places I guess.

 

[jIMOh]

I suspect that he's counting on the diversification to cover for a lack of active management. He could use a policy of only looking at a stock if it actually cut its dividend and the portfolio would probably work fine, as long as he chose decently initially.

Really, at 70 names, you could think of it as its own high-yield index. He would typically have to make a few adjustments a year. A dividend cut, or an aquisition could be the only criteria he'd need to use.

The large cap piece (25%) would not change much. Those changes are easy to see because those companies are in the news.

The utilities piece (25%) would not change much either. Those companies are steady, and it a utility company goes out of business, someone does not have electricity.

The small cap piece I already explained, Turnover will be close to 67% from what my screens tell me (I run a screen like this each year to see how I do). This is 25%

The REITs are he next research step. I think it will be more like the mid cap piece, where turnover is high.

I don't plan to create this piece until the mortgage is paid off, so I have 20 years to figure it out. Maybe 25.

 

[Delawaredave5]

Anyone have any data on international dividend paying stocks ?

Heard a clip on radio where guest said big cap international companies generally pay a higher dividend and historically these international dividends are "more durable and dependable" (I wouldn't guess this on the surface).

Haven't had a chance to research. Isn't there an international dividend ETF ?

In general, dividends are on the "risk/return line" like other asset classes - there's more return than treasuries and other fixed income - and that comes with some greater risk.

 

[mathjak107]

i use powershares PID in my index mix

 

[oliverdickens]

Perphaps this has already been said in this long thread, but I am surprised Suzy didn't mentioned preferred stocks. If you buy A+ you can get 6-7% return. Yes the principle will fluctuate so you have to buy these for holding and generating income, but they are still a lower risk than purchasing higher dividend base stocks. Advantage of the base stocks is on the growth potential,which preferred don't have to any great degree, but risk is higher.

Just a matter of income vs wanting the growth side, but if you are replacing CD's with these it seems an another alternative.

 

[mathjak107]

i owned fidelity convertable securities and while a great fund in an up market it got just as hammered in a down as any other equity fund. im a big believer now dont mix equities and bonds. keep them seperate and keep them dedicated to what they are

 

[TBPu]

Are any posters using the dividend yield for income concerned about this possibility?

Investors May See Dividends Disappear: Financial News - Yahoo! Finance

It seems to me that with the huge losses by financial institutions (major source of dividends), it might lead them to either slash, suspend or slow growth of dividends. For instance B of A needs 4 billion for it's acquisition, will it be collected by lowering dividends?

BB&T lost nearly 40% of it's stock price this years and that seems to be a real show stopper for me. Earning 4% dividend yield on a declining asset.

 

[CyclingInvestor]

Are any posters using the dividend yield for income concerned about this possibility?

Investors May See Dividends Disappear: Financial News - Yahoo! Finance

Certainly. The trouble brewing there has been evident for quite a while. I
redlined WM from my list of tracked stocks early last year, and redlined
BAC and C around mid-year as the trouble spread. Part of investing in
these stocks for income is following them - otherwise you should use a fund.

 

[TBPu]

Since a large percentage of dividend payers are REIT, financial, and energy related. Is there a particular fund of dividend equities that sticks out as less exposed to those 3 risky areas. Energy seems poised to have a shock with all the push by the Saudis and other to either strenghten the dollar or pay in Euro.

If we had to buy Euros to pay for our oil, we have potential of a dollar free fall.

Time for very selective choice of dividend yielders it seems. Any that you see as solid picks? Or is DVY the way to go? Or is anyone high on PEY(ote)?

 

[Gotadimple]

Since a large percentage of dividend payers are REIT, financial, and energy related. Is there a particular fund of dividend equities that sticks out as less exposed to those 3 risky areas. Energy seems poised to have a shock with all the push by the Saudis and other to either strenghten the dollar or pay in Euro.

If we had to buy Euros to pay for our oil, we have potential of a dollar free fall.

Time for very selective choice of dividend yielders it seems. Any that you see as solid picks? Or is DVY the way to go? Or is anyone high on PEY(ote)?

But DVY is 38% Financial, so if you to avoid the risky areas, what makes this fund better? Scroll down to see the chart of sector weightings.

DVY: Snapshot for iShares Trust: iShares Dow Jones Select Dividend Index Fund (ETF Snapshots) | SmartMoney.com

-- Rita

 

[clifp]

Since a large percentage of dividend payers are REIT, financial, and energy related. Is there a particular fund of dividend equities that sticks out as less exposed to those 3 risky areas. Energy seems poised to have a shock with all the push by the Saudis and other to either strenghten the dollar or pay in Euro.

If we had to buy Euros to pay for our oil, we have potential of a dollar free fall.

Time for very selective choice of dividend yielders it seems. Any that you see as solid picks? Or is DVY the way to go? Or is anyone high on PEY(ote)?

If you want to avoid REITs, Financial and energy stocks I think you have to go for individual issues. M* has a solid high yield screen which is basically companies with dividends >3% several years of dividend growth, and growing cashing flow. Lots of household names on this list
Diebold, CBS, Gannett, Carnival Cruise, Genuine Auto Parts, Home Depot, Pfizer, Foot Locker,Hershey, Kraft, Kimberly Clark, GE, Eathan Allen, and about 40 others.

 

[Zathras]

No concerns about financials, other than to watch and adjust.
I certainly agree that no one should buy Citi based on expecting to get the current dividend rate of about 7.7%. I was a bit surprised to see they only listed the cut as 50% likely.
I don't like Funds of dividend payers. You are paying fees and are not in control of which stocks to hold and which to sell thus more likely to incur taxable events.
If you feel energy, REITS and financials are all too risky, as others have mentioned, go with individual stocks. You can pick exactly the sectors you want to be in.

 

[TBPu]

Gotadimple, thanks for that snapshot, that's a nice feature. I'm surprised that it's on 38% and wonder if they've pared back.

And clifp, hey thanks for that list. I'm gonna spreadsheet those and play around with performance in price vs dividend. If I get any noteworthy data I'll post.

Zathras, I think that's the part I'm struggling with. I really want to buy 12 stocks and holdem. No fees. But I also want freedom to travel long periods without contact to civilization so I may need to go ETF route.

Thanks to all for all the comments and sharing. It's new stuff for me as I have never even considered dividend yielders because I was in growth phase not taking out any income. Valuable education, thanks.

 

[Zathras]

While in the growth phase, I would recommend simply reinvesting the dividend yield. Most of the dividend growth stocks are stocks you want to hold long term so there is very little need to do anything with them.

 

[TBPu]

I just entered the retired/withdrawal phase and got fairly lucky by selling a large holding in VTI in October. I've been looking for a small number of buy and hold dividend stocks as a source of income. BUT, it appears that many of the higher yielders are financial, energy and real estate.

So I did spreadsheet the list in clifp's post above and their 3 year performance is literally stomach churning. Only Kimberly Clark appreciated in value and some have lost 50% or more. CBS, Diebold, Foot Locker and Home Depot were big losers and appear headed further in decline.

Now that would be fine if they paid great returns but the average was 3.57% dividend. Less than some money market accounts and much less than CDs with loss of principle value to boot.

Am I missing something? Because I hope to leave in March and not return to the US for a few while I hit some nice ports of call. I'd flip out if my $2.5mil portfolio lost 1/2 it's value while I was away for 3 years.

 

[jIMOh]

I just entered the retired/withdrawal phase and got fairly lucky by selling a large holding in VTI in October. I've been looking for a small number of buy and hold dividend stocks as a source of income. BUT, it appears that many of the higher yielders are financial, energy and real estate.

So I did spreadsheet the list in clifp's post above and their 3 year performance is literally stomach churning. Only Kimberly Clark appreciated in value and some have lost 50% or more. CBS, Diebold, Foot Locker and Home Depot were big losers and appear headed further in decline.

Now that would be fine if they paid great returns but the average was 3.57% dividend. Less than some money market accounts and much less than CDs with loss of principle value to boot.

Am I missing something? Because I hope to leave in March and not return to the US for a few while I hit some nice ports of call. I'd flip out if my $2.5mil portfolio lost 1/2 it's value while I was away for 3 years.

I think most sound companies pay around 1.5%-2% as yield.

Look at PG, GE, and MSFT as best large cap dividend payers. My understanding is Oracle is similar to most solid dividend companies, it just doesn't have a dividend yet.

Look at top 10 holdings of popular dividend growth mutual funds.

Exxon Mobile, Merck, International Paper, Johnson and Johnon, Motorola, ATT, AIG, Wal Mart are all in 5 funds I just looked at quickly which are either equity income or dividend growth.

Choose around 10 large cap stocks, then maybe 5 more mid cap types to go for higher yield. Plan on top 10 being reliable for 90% of what you need, with other 5 being the chance for larger income streams.

 

[TBPu]

jiMoh, thanks for that posit. I like the thinking and will backtest that list with and without the midcap.

From the book that ats5g mentioned in a post above, the Miller-Modigliani theorem states that dividends do not affect stock price. Others argue that an increasing dividend spurs investors to buy a stock expecting solid performance.

Anyone aware of a study that has tested this? Seems like something that could be proved/disproved.

 

[jIMOh]

jiMoh, thanks for that posit. I like the thinking and will backtest that list with and without the midcap.

From the book that ats5g mentioned in a post above, the Miller-Modigliani theorem states that dividends do not affect stock price. Others argue that an increasing dividend spurs investors to buy a stock expecting solid performance.

Anyone aware of a study that has tested this? Seems like something that could be proved/disproved.

There is a concept called payout ratio- the % of profits a company is paying out. You probably want this number to be as low as possible.

I would also make sure if you needed 20k of dividend income, that no single company was providing more than 2k (10%) of that income stream. This reduces the risk of anything bad happening considerably.

 

[clifp]

I just entered the retired/withdrawal phase and got fairly lucky by selling a large holding in VTI in October. I've been looking for a small number of buy and hold dividend stocks as a source of income. BUT, it appears that many of the higher yielders are financial, energy and real estate.

So I did spreadsheet the list in clifp's post above and their 3 year performance is literally stomach churning. Only Kimberly Clark appreciated in value and some have lost 50% or more. CBS, Diebold, Foot Locker and Home Depot were big losers and appear headed further in decline.

Now that would be fine if they paid great returns but the average was 3.57% dividend. Less than some money market accounts and much less than CDs with loss of principle value to boot.

Am I missing something? Because I hope to leave in March and not return to the US for a few while I hit some nice ports of call. I'd flip out if my $2.5mil portfolio lost 1/2 it's value while I was away for 3 years.

I think while you can buy and hold dividend stocks forever. I don't think you can't construct a portfolio of high yielding dividend stocks and disappear for a few years with no monitoring. In your situation, I think sticking to index funds and asset allocation makes the most sense.

You are right most of the stocks have done horribly over the last three years. On the other hand very few of the stocks would have been yielding 3% back in Jan 05. So looking at group of stocks past performance is very misleading.

Home Depot is a classic example. In Jan 05 the stock was trading at around $40/share but the dividends where only $.10 yielding 1%. It's P/E was 22. Fast forward three years now HD is trading at $25 earnings at are currently $2.40-$2.50 (above 2005 levels the company is bigger) and forecasts to be flat giving a P/E of 10. However, dividends have in increased from $.10/qtr to $.225 and the stock yields 3.5% Given that company is making $2.50 but paying only $.90 it has plenty of room to continue to grow dividends, even if the business doesn't pick up. More importantly dividends act as a floor, at <$18 the stock looks pretty attractive with 5% yield. One thing I am sure of HD with dividend of 3.5% and P/E of 10 looks a lot better than a 1% dividend and PE of 22 back in Jan 05. But I am value investor.

I don't know a way of running the screen back in Jan 05. This would be an interesting exercise. Just for fun I did create a portfolio of 20 stocks from the screen with mostly household names and 4 or 5 M* ratings, but more or less randomly. Come back in 3 years and lets see how well the portfolio did.

In the meantime I'll get my book review of Josh Peter Dividend book ready.

 

[Running_Man]

My method of investing in dividend stocks in past years was to use the Value Line Index of 1700 stocks. Then reduce by all stocks paying dividends every year and having raised the dividend every year for the last 10 years and having Financial Strength of B+ or better and rated 75 or higher in price stability and earnings predictability, ideally I also like the price growth stability to be over 75 as well, although I would consider the stock as long as it was 50 or higher (better than average for growth prospects. When Price Stability or Earnings Predictability falls below 65 I would sell. I used this as a first screen to list potential


http://www.valueline.com/dow30/f5993.pdf